Cinedigm Digital Cinema Corp. — Form 10-Q Summary
Reporting period: Quarter ended December 31, 2012 (the third quarter of fiscal 2013), with nine-month comparisons to December 31, 2011. The supplied filing is for Cinedigm Digital Cinema Corp.; it does not use the name Cineverse Corp. Figures below are in millions of dollars unless otherwise stated.
Business context
Cinedigm operated digital cinema deployment and services businesses, software operations, and a Content & Entertainment segment. The latter included New Video Group, acquired in April 2012. The filing describes the end of the North American Phase II deployment period as January 31, 2013.
Financial performance and position
| Metric | Three months ended Dec. 31, 2012 | Three months ended Dec. 31, 2011 | Nine months ended Dec. 31, 2012 | Nine months ended Dec. 31, 2011 |
|---|---|---|---|---|
| Revenue | $23.2 | $19.8 | $66.7 | $58.9 |
| Operating income | $3.8 | $3.4 | $9.3 | $13.7 |
| Loss from continuing operations | $(1.8) | $(3.8) | $(9.3) | $(8.4) |
| Net loss | $(1.8) | $(10.6) | $(9.5) | $(17.3) |
| Operating margin | 16.3% | 17.2% | 13.9% | 23.3% |
Quarterly revenue rose 17%, chiefly as Content & Entertainment grew following the New Video acquisition; Services revenue declined. Nine-month revenue rose 13%, while operating income fell as deployment and Services results weakened and expenses increased. Prior-year net losses included discontinued operations, including a $6.9 million loss in the December 2011 quarter. Nine-month 2012 interest expense was $21.4 million.
- Cash flow: Nine-month operating cash flow was $24.0 million, versus $29.8 million a year earlier. Investing used $0.4 million, compared with $17.2 million; financing used $24.2 million, compared with $6.7 million. Cash and cash equivalents ended at $17.3 million.
- Liquidity: Cash plus restricted cash was $23.1 million. Current assets were $73.8 million and current liabilities $82.1 million, a negative working-capital position of $8.3 million.
- Debt: Total debt, including capital leases, was $237.0 million, down from $263.8 million at March 31, 2012. This included $94.4 million of recourse notes and $137.3 million of non-recourse notes; capital leases were $5.3 million. The company reported compliance with debt covenants at December 31, 2012.
- Other balance-sheet items: Stockholders’ deficit was $5.7 million. Accounts payable and accrued expenses rose to $43.0 million from $20.9 million at March 31, 2012. The New Video acquisition added $15.1 million of preliminary intangible assets and $1.3 million of goodwill.
Changes, outlook, and risks
- New Video contributed approximately $10.0 million of revenue and $1.6 million of net income from acquisition through December 31, 2012. Cinedigm issued shares and paid cash for the acquisition; up to a further $6.0 million of contingent consideration may be payable if performance targets are met. The recorded fair value of that consideration was $3.8 million.
- Management expected Adjusted EBITDA to improve in the remainder of fiscal 2013 compared with the prior year. It anticipated relatively flat Phase I and Phase II deployment revenue after the domestic deployment period, with growth opportunities from software, servicing, international installations, and content distribution. The filing gives no specific numeric revenue or earnings guidance.
- Management said it believed cash on hand and expected operating cash flows would fund obligations through at least December 31, 2013. It also warned that continued losses, failure to grow revenue, inability to raise capital, or failure to control discretionary spending could harm liquidity. Debt restrictions could constrain financing and require substantial cash flow to service obligations.
- Content releases involve upfront acquisition and marketing costs that may precede ancillary distribution receipts (“J-Curve” timing). Cinedigm reported approximately $1.0 million of such costs during the nine-month period and expected recovery over the following 12–36 months; recovery depends on future title performance.
- Studio release timing affected deployment revenue and Adjusted EBITDA. Management expected the unusual delays and release-pattern effects experienced in the second quarter not to negatively affect the remainder of fiscal 2013, but results remain sensitive to film schedules and seasonality.
- The company reported no material litigation expected to affect its financial position, results, or liquidity; no defaults upon senior securities; and effective disclosure controls. It reported no significant quarterly change in internal control over financial reporting.
Investor verification priorities
- Check the current legal issuer and corporate history: this 2012 filing is under Cinedigm Digital Cinema Corp., not Cineverse Corp.
- Track cash generation, negative working capital, near-term debt and interest payments, and the company’s stated liquidity runway.
- Separate non-recourse deployment debt from recourse debt and review repayment schedules, covenants, and the 2010 Note’s PIK interest and maturity terms.
- Assess whether New Video and the film slate deliver the expected revenue and cash collections, including contingent consideration and the timing of “J-Curve” cost recovery.
- Compare reported GAAP results with management’s non-GAAP Adjusted EBITDA, including its exclusions and the effects of deployment subsidiaries.